UPI MDR: What Changes For Customers And Merchants?
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UPI MDR: UPI payments will continue to be free for customers, including person-to-person transfers. If a Merchant Discount Rate is introduced later, it would apply only to selected merchant transactions above a threshold that has not yet been announced.
The government has clarified that UPI users will not be charged for making digital payments, following concerns over a possible introduction of Merchant Discount Rate (MDR). Any such charge, if brought in, would be restricted to certain merchant transactions and would not apply as a blanket fee across UPI payments.
The clarification came after the Lok Sabha passed the Taxation and Other Laws (Amendment) Bill, 2026. The legislation removes the existing legal restriction on charging MDR on certain electronic payment transactions. It does not, however, introduce an MDR on UPI by itself.
How Will The Proposed UPI MDR Rules Affect Customers?
For customers, the answer remains no. The Finance Ministry has said that person-to-person (P2P) UPI transactions will continue to be free. Consumers using UPI for everyday payments will not face a transaction fee under the proposed framework.
Most merchant payments are also expected to remain free. If MDR is introduced, it would cover only a limited group of merchant transactions above a specified value and would be charged at a nominal rate.
The government has said such a rate would be considerably lower than the MDR generally applicable to debit and credit card payments. This means routine UPI payments at small shops, tea stalls and local stores are not expected to attract a new charge.
Which UPI Transactions Could Attract MDR?
The government has not yet announced either the transaction threshold or the rate.
Earlier reports had suggested that transactions above ₹2,000 could potentially come under the levy. One proposal discussed an MDR in the range of 0.3%-0.5% for higher-value transactions involving larger merchants. These details are not final.
The decision will come after the proposed changes to Section 10A of the Payment and Settlement Systems Act, 2007 take effect. The government has said that the UPI and Services Steering Committee, headed by NPCI, will decide whether MDR should be introduced and, if so, how it would work.
Why Is The Government Looking At MDR For UPI Now?
The debate comes as UPI continues to handle larger volumes of digital payments. In July 2026, the platform processed a record 2,366 crore transactions worth ₹29.9 lakh crore, according to government data. UPI is currently live in 11 countries as well.
The government has said the growing scale of the payment network requires a sustainable financial model. UPI's expansion also involves continued spending on cybersecurity, fraud prevention, technology and payment infrastructure, particularly as digital payments reach more users in rural and semi-urban areas.
The proposed change therefore creates the legal framework for a possible MDR without imposing one immediately. For customers, the government's position remains unchanged: P2P UPI payments will stay free, and any future MDR would be limited to selected merchant transactions above a specified threshold.
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Vishwa is a content and SEO strategist with 10+ years of experience across fintech and FMCG. She has a knack for connecting dots others miss, spotting trends early, and finding angles on topics most miss to question.
At Kotak Neo, she drives content strategy for neoshorts, Kotak News Desk, and Investing Guide.
Outside work, she's drawn to art, painting and architecture, and enjoys travelling to explore them firsthand.
